Intelligent design

BI helps CIOs understand customers

By Stuart Lauchlan

January 14, 2007

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Did you hear the one about the US retail chain that bumped up its revenues by sticking bottled beer on the shelves alongside nappies?

Apparently analysis of sales figures revealed that young fathers were popping in to buy nappies on a Friday night and would snap up a bottle or two of beer in the process if they were on the same shelf. The story has become one of the staple clichÈs of every data warehousing and business analytics vendor in the industry. Unfortunately despite all their efforts to claim this ‘result’ as their own, it is also totally apocryphal – no US chain store would place alcohol next to nappies. It would be illegal. But never let reality get in the way of a good marketing pitch – and this is a good marketing pitch.

It demonstrates the importance of business intelligence (BI) activities and why BI is a key enabler to cut through some other industry clichÈs. Perhaps the most important of these is the old standard about companies investing in technologies that result in the accumulation of data but then simply end up with mountains of the stuff that they have no means of analysing and turning into actionable information.

Data deluge

This has been seen most notably in the field of data warehousing, where it seems that size very much matters. Knowledge is power for the executive mentality and as such you focus as much effort as you can into gathering as much data as possible. Only as you are drowning in data do you realise that you now have too much and cannot turn it into knowledge. That is where BI comes in. In a survey of 1,400 CIOs, Gartner found BI will surpass security as the top technology priority this year. CIOs plan to increase their business intelligence budgets by an average of 4.8 per cent, and Gartner predicted that sales of new licenses for BI software will reach $2.5 billion this year, a 6.2 per cent increase from last year.

So it is good news all round then? Well, not exactly. Spending money on a technology solution does not make much difference if the problem it is supposed to solve has not been properly considered. Compare Gartner’s optimistic assessment with a study by ICS of 1,000 UK business managers which found that over three-quarters of respondents made decisions ‘blind’ due to late or insufficient business information. Or an Oracle-funded survey of 200 IT directors in which over half of respondents said they did not have any BI systems.

One immediately apparent problem is definition. Even in an industry where terminology is bandied around in a shamelessly expedient manner to drive the latest bandwagon, BI has been hideously abused. Over the years it is been applied to analytics, data mining, data warehousing, online analytical processing, even good old fashioned expert systems.

Defining BI

“BI does certainly mean different things to different people,” says Anthony Bull, eprocurement manager at Norfolk County Council. “In fact what it means can vary depending on what part of an organisation you are in. I’m in corporate procurement so we tend to look at it from a corporate point of view. We’re also in the public sector so we are not aiming to make a profit using BI but to understand interactions in order to deliver a good quality service. Before we had Oracle Daily BI and Oracle BI Discoverer all of our data came from taking information out of old accounting systems and then trying to break it down. Our invoice detail was usually at summary level so trying to understand what we bought and from whom was not easy. To get down to that level of information was going to mean digging out initial invoices and going back to the person who had ordered it. Now we get standard reports.”

A general definition would be that BI refers to tools and systems that play a key role in the strategic planning process of the corporation and which allow a company to gather, store, access and analyse corporate data to aid in decision making. They should illustrate business intelligence in the areas of customer profiling, customer support, market research, market segmentation, product profitability, statistical analysis, and inventory and distribution analysis.

The benefits

According to research analysts IDC, the top benefit derived from successful implementation of BI is being able to optimise customer communications, followed by generating action-ready insight based on customer value metrics. Organisations that use BI tools show a 16 per cent higher ability to provide insight into customer needs and are more effective in predicting customer behaviour by 24 per cent than those who do not. Internet marketing and ecommerce specialist E-consultancy reckons that BI and analytics capabilities are now being married ever closer with sales and marketing activities within organisations. “There has been a move in ownership of analytics from the IT department to the marketers,” says Linus Gregoriadis, an analyst at the firm. “IT used to look at the data but not necessarily share it with the wider business, but now it is seen as a tool to drive business improvements.” That is particularly true in high churn business sectors where analysis of customer behaviour, moods and activity is crucial.

For example, online financial firm Egg has deployed Enterprise Feedback Management (EFM) software Confirmit from FIRM as its reporting platform to service a customer experience team with expertise in survey research. Business users can push requests for data to this team which creates surveys populated with data drawn from its CRM systems. Deliverables have included an enhanced set of customer relationships and increased loyalty with an initiative launched in 2005 to target those customers who are at risk of losing control of their debt. “With any information that you got out of a tracking system or service, if the levels of satisfaction dropped or increased then you had to go away and investigate further,” says John Jennick, head of customer experience and action at Egg. “That would then be a two week process, which just wasn’t quick enough. You need to have a really clear picture of a customer – how many customers do you have, how much contact have you had with them, what products do they buy and so on.”

Powering ahead

Over in the utilities sector, Powergen is using business analytics technology to target customers and prospects with the most appropriate energy packages for their needs. The company uses analytics technology from specialist firm KXEN. “Where once the competition was very aggressive with a constant race to acquire customers, now it is maturing and causing all the suppliers to rethink their tactics,” says Mark Perrett, head of customer relationship management and intelligence, Powergen.

“It’s difficult to get competitive intelligence which makes it all the more important to understand and use customer data. And that really highlights the importance of modelling.

“One of the things that we’ve done over the past couple of years is to build a model that can support our marketing campaigns. The first time we used a KXEN generated model to support campaign activity we saw a 20 per cent lift in sales and a direct £150,000 saving in mailing costs. Those figures represent an excellent and speedy ROI. More importantly, we also retained 300,000 customer contact opportunities for future campaigns, having been told by KXEN that a successful sale was unlikely to result this time,” he says.

Internet impact

The internet is largely responsible for the massive increase in data that most organisations have to deal with and, as such, it is the latest frontline in the BI and analytics market.

According to a recent study by web analytics firm Coremetrics, 73 out of 120 respondents said that analytics and measurement have become more important over the past two years. These skills are now seen as more important than branding and product promotion.

Some 86 per cent said their decision-making is more reliant on analysis than two years ago but 50 per cent admitted that they need to improve their analytical abilities.

Web analytics enable online ventures to see which keywords bring the most hits and more significantly the highest conversion rates. Clearly the longer people spend on a site, the more likely they are to buy something. Analysing data about traffic allows you to see which keywords are most effective in bringing customers to a site and retaining them. Websites can also see where and when people are exiting, which might explain underlying reasons for poor business.

The price of success

Lastminute.com is one of the veterans of the dot-com boom and bust – and is that rarest of phenomena: one that has gone from strength to strength. Its success has however brought operational challenges of its own.
More than 200,000 visitors from the UK alone visit Lastminute.com properties every day. “The main business and strategic driver behind introducing web analytics capabilities was our substantial growth in the early days of the company when we had fairly basic metrics and KPIs,” says Duncan Horton, head of search marketing and site management, Lastminute.com.

“When we got past the dot-com boom and started to take Lastminute.com to become the major player that it is today, we needed more and more detailed analytical capabilities in order to support sales activities on the site.

“We are about to adopt Teradata as a standard CRM platform. It will enable us to do personal data mining and Omniture’s web analytics software allows us to do click path analysis.

“At a merchandising level, it allows us to identify and concentrate on the products that yield better conversions and margins. The visibility we now have is amazing – it is like someone turning on the light in a dark room.”

In deliverable terms, Lastminute.com has achieved a 28 per cent increase in look-to-book conversion rates through its website as well as seeing a 700 per cent increase in click-throughs for newly-developed navigation tabs.

Analysing behaviour

Lastminute.com has boosted its insight into the behaviour of its online customers, which in turn provides it with the information it needs to provide customers with the best online experience possible. Among the many questions the company can now analyse is what marketing activities drive customers to the website or why some people make a booking; why and where people drop off the site. Because it now has visibility into how customers interact with the site, the company has been able to make both design and navigation changes to their website that increase profitability.

“Until we deployed web analytics, our merchandising teams had been making their decisions on stock based on sales from the previous day,” says Horton. “As a result they were making decisions based on historical, not real time data. What web analytics brings us is the ability to understand the customer’s path through the site. We can see what the hot spots are on the home page, what is relevant to the customer and what is not. Until that point, we weren’t able to improve on our conversion rates because we didn’t know where and when and why customers were dropping out of the site.

“At a more technical level, we have been able to advance our search engine marketing. We can use this to see how our search engine marketing is performing. We use this as a tool across the whole of our marketing and supply team. When I look across the room at work, I can see 50 people in our marketing team with 15 or so of them using the web analytics technology. It’s that embedded in our business.”

The company can create up-sell opportunities across the different product offering categories, for example, encouraging customers who are making a lifestyle booking, such as a theatre ticket or restaurant booking, also to make a travel booking, and vice versa. If Lastminute.com sees that holidays to a particular destination are selling really well, Horton and his team can give that destination more prominence in the e-newsletter; or they can change their search keywords to reflect the areas in which consumers are showing the most interest.

Specialised information

One problem with traditional analytics is the resultant mass of data that can be generated. “We have managed to avoid the data deluge problem,” argues Horton.

“We have top-level reports that are pushed out to the various areas of the business. But there is also specialist data that goes to certain groups. So our hotel supply team will get hotel data about sales, reservations information and so on. Meanwhile our technical guys will get error reports and hit rates, while general marketing people get a feel for the overall site traffic. But everyone can read an appropriate daily report.

“There are basic KPIs but staff also have their own real time dashboards which they can open with a browser,” says Horton.

“This is particularly useful for our merchandisers who need to make sure that their products are up to date and can be put on or taken off a page quickly. It’s all just very useful. We can pull up the Lastminute.com home page and then pull up an overlay that has heat spots marked on it. The more red, the more interaction that page has had with customers. These are very specialist services that not many CRM firms could deliver.”